Recording A Notice of Interest When You Have A Property Under Contract

Recording a memorandum of contract when you have a property under contract

A Notice of Interest is an important way to protect yourself as a buyer in a real estate transaction. When you sign a purchase contract with a seller, and they agree to sell you their property for a specific price, you want to make sure that they do not decide to sell it to someone else for a higher price.

Some investors tell sellers to get an offer in writing and tell the seller that they will beat any written offer. Essentially this allows the seller to “shop” your offer and find a buyer that will pay a few thousand dollars more than what you offered.

There is nothing wrong with a seller trying to get the most for their property. But there is something wrong with them doing so after they have signed and executed a purchase contract and have agreed to sell their property to you at a specific price. It is very common and normal for sellers to try and negotiate with buyers to get the highest price. However, once they have agreed to sell the property to you at a certain price, and you have a signed and executed purchase contract, then there is a legally binding contract between the two of you which means that both the buyer and seller need to abide by the terms of the contract.

As the buyer, in order to make your contract valid, you must put up the deposit with your title company. Do not skip putting up the deposit. Your contract is not valid without a deposit. Your contract has a clause in it that specifies how many days you have to place the deposit in escrow with the title company or attorney.

Unfortunately, some sellers will use your signed purchase and sales contract as a tool to negotiate for more money from another buyer that they are talking to. Filing a Notice of Interest will prevent this from happening. It’s also a good idea to let sellers know if you suspect them of doing this that you have recorded a Notice of Interest and that it is a criminal offense to sign a contract to sell a property when you have another signed contract in place.

If you are trying to wholesale an assignable contract, by marketing the property online or via email blasts or Facebook, you run the risk that another wholesaler (or another buyer) who sees the property may try to approach the seller with a higher offer than yours. Unfortunately, this happens every day. A Notice of Interest will protect you from having this happen. However be warned that if all you do is wholesale, and you have no intention of closing, then your seller’s attorney is going to have a field day with that. Also, remember that anything you do (like soliciting the sale of real estate without a license) will invite further scrutiny. So I encourage you to discuss this with your Attorney and to only file a Notice of Intent on properties that are such great deals that you are willing to close on them. This makes sense since those deals are worth fighting for. Do not file a Notice of Interest if you plan on canceling your contract if you can’t find a buyer.

Once you have an executed purchase contract, you should immediately submit it to your title company along with the deposit on the same day that the contract is executed. The title company will order a title commitment and lien search but it’s important that you protect your equitable interest in the property. The way that you do this is with a Notice of Interest (sometimes referred to as a memorandum of contract although that is not the correct legal term).

While we are talking about legal terms, please note that I am not an attorney and nothing in this article should be construed as legal advice. Please consult with your attorney in your State with regards to filing a Notice of Interest.

What is A Notice of Interest?

A Notice of Interest is a one page document that is filed with the County Clerk’s office of the County where the property is located. The purpose of the Notice of Interest is to publicly declare to everyone that you have an equitable interest in the property. It serves as a notice to others, that the filer of the notice of interest (you) has a potential claim or equitable interest in the property. If the seller tries to sell the property to someone else, when the title company does a lien search they will see the recorded notice of interest. The seller will not be able to sell the property until this notice of interest is removed.

The Notice of Interest essentially becomes a lien on the title and has to be removed (by you) prior to closing. This means that you have to agree to remove it. In the event that the seller tries to sell the property at a higher price to another buyer, your filing of the notice of interest will prevent them from doing so. They will have to request that you remove the lien. The seller or the buyer may offer to settle with you for a fee which you may or may not agree to. Keep in mind that the seller can and may consult with an attorney who will then threaten to sue you if you do not remove the lien. You will have to decide if you want to stand your ground or not. But if you plan on closing, you may want to. Remember that you may need to pay substantial legal fees to hire an attorney to defend yourself. So it’s a good idea to calculate the potential profit on the deal and decide if it’s worth it or not. If you are going to record a notice of interest, I recommend that you seek the advice of a competent real estate attorney and have them record the Notice of Interest for you. Your purchase contract also needs to allow for a notice of interest to be filed (most contracts do not).

Is It Legal To File A Notice of Interest?

Most States have a statute that covers the filing of a Notice of Interest. In Florida, the process and requirements for filing a Notice of Interest are governed by state statutes and regulations. The specific statute that addresses Notices of Interest is § 713.585 of the Florida Statutes, which pertains to construction liens and other liens on real property. According to Florida law, a Notice of Interest must include essential information such as the legal description of the property, the name and address of the person filing the notice of interest, and the nature of the interest or claim being asserted.

The notice must be filed with the clerk of the circuit court in the county where the property is located and must be served on the property owner and other relevant parties as specified by law. It is also very important that your original purchase contract allows for a notice of interest to be recorded. You should consider having your attorney prepare your purchase contracts and include this language in your purchase contract. That same attorney can also provide you with a Notice of Interest form. You may think that this is expensive, but I would imagine that most attorneys would do this for less than $1,500. Imagine missing out on your next great rental or fix and flip because you used the wrong forms or another buyer got hold of the seller and the seller sold it for a few thousand dollars more than your offer. What would that cost you? Once you have the correct legal forms you can use them again and again. You will also have an attorney ready to defend you if you need it.

If you are buying real estate from motivated sellers, a Notice of Interest is a vital tool for protecting your equitable interest in the property. If the buyer does not close, the seller’s remedy is they can keep the buyer’s deposit. This is why you want to use the lowest deposit possible as a buyer. This is also why an astute seller will want a higher deposit. Your deposit can be as little as $10 in order for the contract to be considered valid. So what is the buyer’s remedy? The Notice of Interest in the property which prevents them from selling it to someone else.

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